Stability in sight

Updated: Jul 31 2007, 03:41am hrs
Headlines may remain reserved for the distress or joy of farmers in their involvement with the commodity futures market, but it is worth noting that 75% of the trading in India is accounted for by gold, silver, guar seed and chana. For this skewed trade pattern, do not blame the ban imposed some months ago on high-profile agricultural commodities, tempting though it is. The skew predates the ban. Going by data from the three national-level commodity markets, MCX, NCDEX and NMCEX, the top traded commodities other than gold and silver are items like pepper, rubber, raw jute, guar seed, chana and soya oil. This has been the state of affairs for the past few years.

As an FE report yesterday on the growing clout of the Multi Commodity Exchange of India (MCX) in the commodity trading universe shows, the fact that market volumes have risen in the post-ban period makes it even more difficult to draw any connection between zest for trading and speculation in agro commodities. The fact is that this exchange has made a success of itself, and it may not be long before its main index is used as part of global comparison templates that include the Goldman Sachs commodity index and Dow Jones AIG Commodity Index, among others. MCX has registered a turnover growth of 38% during the January-June period of 2007, and reinforced its market leadership with a share of nearly 71%, up from about 54% in the first half of 2006. This platform dominance should not worry regulators, so long as the exchange has competitors. In fact, its emergence as the clear leader would make life easier for the Forward Markets Commission, which can now maintain orderly commodity market conditions by keeping watch largely on this exchange. It should be a benign watch, too. A futures market may have its share of speculators, as any market has, but it principally attracts hedgers who minimise forward risks by entering into contracts with arbitrageurs or traders who have their own view of price directions. Overall, as participants and volumes increase, price discovery becomes that much more efficient, and the coming into being of long-range equilibrium commodity prices can then serve the interests of farmers. In all, the timely flow of information to the market helps stabilise these prices, and that in itself is of value to farmers.